Abbott Labs Posts 10.7% Rise in Sales During 2011

US pharma major Abbott Laboratories has announced fourth-quarter and calendar year 2011 financial results, showing a 4.1% year-on-year (y/y) and 10.5% annual rise in total global sales respectively. In terms of contributions, nutritionals and proprietary pharmaceuticals sales registered higher growth following a demonstrable rise in domestic market sales. US nutritionals increased 5.8%, with continued double-digit growth in PediaSure and Ensure franchises. Favourable exchange rates helped boost the topline growth figures further. Emerging markets sales were USD2.5 billion, representing nearly 25% of total sales, with particularly strong growth in nutritionals, vascular and diagnostics. In the Established Pharmaceuticals business, strong performance was seen in Russia, India, and China, while nutritionals saw particularly strong growth in Asia and Latin America.

The firm posted lower cost of sales in the fourth quarter, and apart from that all other costs ended higher in both periods under review. Operating income was higher by 13.8% y/y in the fourth quarter, while it dropped by 5.5% in the full-year period. Net income stood at USD1.69 billion, up 12.3% y/y, in the fourth quarter, and at USD4.72 billion, up by 2.2%, in the full-year period. Nevertheless, the firm saw some specified items that affected its bottomline. These were: after-tax charges of USD1.454 billion related to litigation reserves; USD673 million relating to acquired in-process research and development (R&D) related to the Reata and Biotest collaborations; USD341 million associated with the acquisition of Solvay Pharmaceuticals (Belgium); USD76 million for the impairment of an R&D intangible asset; USD137 million for the 2009 and 2010 impact of the change to the calendar year end for international operations; USD110 million for previously announced restructuring of the pharmaceutical business; USD311 million for cost-reduction initiatives and others; and USD80 million for other litigation reserves. These items were partially offset by a favourable adjustment from the resolution of prior years' international and US tax positions for USD580 million.

In terms of product sales, the rise in proprietary pharmaceuticals sales was driven by strong growth across a number of key franchises in the United States and internationally, including Humira, Androgel, Creon, Lupron and Synthroid, the company said.

Job Cuts

In addition, the pharma major announced job cuts at its manufacturing units. According to Marketwatch.com, 700 jobs will be cut, and there are plans to further the cuts to "several hundred additional positions over the course of the year". The source adds that the cuts were in anticipation of the Promus contract supply agreement with Boston Scientific Corp (US), which expires in mid-2012. The announcement will affect Abbott's pharmaceutical as well as medical devices and diagnostics units.

Outlook and Implications

Abbott Laboratories' performance for the fourth quarter and full year of 2011 has been robust, with good growth in topline figures particularly the full year. The year ahead, however, is going to be very challenging for the firm. Abbott is expected to focus on two main elements in 2012. The most immediate issue is the planned split of its operations into two publicly traded companies. This was announced in October 2011, and will see the firm establish itself as separate medical products and pharmaceuticals companies. The firm has said that the transaction is intended to include a tax-free distribution to Abbott shareholders of a new publicly traded stock for the new pharmaceutical company. The entire process is expected to be completed by the end of 2012.

Further on, the pharma major issued guidance for the full-year 2012 of USD4.95 to USD5.05. Abbott forecast specified items for the full-year 2012 of approximately USD0.35 per share, primarily associated with acquisition-integration and cost-reduction initiatives. This forecast excludes one-time costs related to the planned separation of Abbott into two companies, which will be quantified at a later date, the firm said. Including these specified items, projected earnings per share under Generally Accepted Accounting Principles (GAAP) would be USD4.60 to USD4.70 for the full-year 2012.